As the Internet has become more widespread, the amount of information it can make readily available to the public has given rise to new products in the financial services industry. Whereas investors previously relied upon expert analysis and recommendations for specific stock or fund performances and trends in the market, the ability to access and process virtually unlimited amounts of information has given traders a new level of control over their investing decisions. By analyzing information themselves, traders can detect trends and patterns that indicate favorable trade opportunities.
Nevertheless, traders need environments in which to develop and test their investment strategies before expending capital on actual purchases. Backtesting is the practice of simulating a trade strategy by running it upon historical data, thus enabling traders to view how their strategy would have fared over a defined timeframe. Fidelity Wealth Lab Pro is at the forefront in providing backtesting capability. It enables users to test strategies on entire portfolios of stocks and it places almost exhaustive levels of market data at the users' disposal. Users have access to at least ten years of historical end-of-day data, two years of intra-day price data, six years of fundamental data, and ten years of economic indicators. If desired, users may access streaming, real-time data as part of their chosen backtesting strategy. Wealth Lab Pro is a thick client application that loads and executes on the traders computer.
Traders gain valuable insight from obtaining and analyzing the results of backtesting. Backtesting enables them to optimize their strategies by comparing the effectiveness of alternatives and evaluating refinements, as well as the results compared to a buy-and-hold strategy. It also helps them test theories of which combinations of economic, fundamental, or technical indicators are best for selecting outperforming stocks. Results also help create risk management policies such as stop-loss guidelines and value-at-risk limits, or profit optimization predictions based on support, resistance, and breakout levels. It also permits traders to set margin and money management rules such as would be used in real-time financial, trading situations.
Wealth Lab Pro also provides numerous options and avenues for developing investment strategies. Users may access trade strategies developed by other users, also “as is” or as building blocks. Alternatively, traders may develop trade strategies from the ground up. Once a strategy is established, the criteria used for that strategy can be changed by either reprogramming the strategy or reconfiguring the strategy with a rules wizard.